Improving Tax System of Ukraine in Terms of Martial Law

Abstract

The aim of the study is to identify directions for improving the tax system of Ukraine under the current challenges of martial law. Based on horizontal and vertical analysis and the calculation of relative indicators, the main revenue-forming taxes have been identified; the role of indirect and direct taxes has been assessed; and the tax burden at the macro level of the domestic economy and in foreign countries has been examined. It has been found out that in 2019–2024 tax revenues have been the main source of income for the Consolidated Budget of Ukraine. The key budget-forming taxes have included value added tax, personal income tax, corporate income tax, and excise tax. Following the full-scale invasion in 2022, revenues from excise tax, corporate income tax, and value added tax have decreased most significantly. At the same time, an increase in personal income tax revenues has occurred due to the monetary remuneration of military personnel and rank-and-file and commanding staff. Meanwhile, personal income tax from the wage fund has declined as a result of the economic downturn, which has been accompanied by a corresponding reduction in corporate income tax revenues. After the full-scale invasion, direct taxes have assumed a key role in the formation of budget revenues. While operating under martial law, Ukraine has maintained a moderate level of tax burden compared to foreign countries. Given the growth of public debt in Ukraine, a need to increase tax revenues has emerged. Taxes have constituted the basis of the state’s financial independence, and under current conditions it has become impossible to finance military expenditures without increasing tax revenues. Chronic budget deficits, the potential reduction of foreign aid in the future, the needs of economic recovery, and the state’s social obligations have required the introduction of progressive taxation in order to implement the principle of social justice. The introduction of a progressive method of taxation has been recommended for the following taxes: personal income tax (on wages, passive income, inheritance, and gifts); tax on real estate other than land plot; and environmental tax. It has also been considered advisable to reduce the tax-free threshold for imported parcels and to avoid increasing pressure on production and small businesses in order to prevent the shadowing of the economy.